23Dec13

Press release

Group

SCOR launches a new innovative contingent capital facility

SCOR announces an innovative and efficient 3-year contingent capital facility. This takes the form of a guaranteed equity line, providing the Group with EUR 200 million coverage in case of extreme natural catastrophe or life events. The facility is consistent with SCOR’s “Robust Capital Shield” – one of the Group’s four cornerstones – and with its “Optimal Dynamics” strategic plan.

SCOR announces an innovative and efficient 3-year contingent capital facility. This takes the form of a guaranteed equity line, providing the Group with EUR 200 million coverage in case of extreme natural catastrophe or life events. The facility is consistent with SCOR’s “Robust Capital Shield” – one of the Group’s four cornerstones – and with its “Optimal Dynamics” strategic plan.
 
Following the authorization granted by SCOR’s shareholders in April 2013, SCOR has arranged a new contingent capital equity line with UBS. This equity line facility will replace, as of January 1, 2014, the current contingent capital facilities which come to an end on December 31, 2013. Under this new EUR 200 million arrangement, SCOR raises its protection versus the existing contingent capital facility by EUR 50 million.
 
This contingent capital solution is innovative in that protection would be triggered in case of extreme life events, as well as natural catastrophe events included within the last facility. It is calibrated to protect SCOR’s solvency, in the case of such events, from deteriorating below the “Optimal” zone as defined in the “Optimal Dynamics” strategic plan.1 The facility also allows SCOR to further diversify its means of protection and counterparties and offers a very cost effective alternative to traditional retro and ILS.
 
For this new facility SCOR pays an annual commission to UBS of 0.10%, which makes it highly cost-efficient relative to the previous contingent capital arrangements and relative to other forms of capital. In addition, SCOR has substantially lowered the probability of the trigger events compared to its first structure in 2010 (by significantly raising the applicable trigger thresholds), which also significantly lowers the probability-weighted costs to SCOR and its shareholders.
 
Under the new facility, drawdown may result in an aggregate increase in the share capital of up to EUR 200 million (including issuance premium), in respect of which SCOR has entered into a firm subscription commitment with UBS. The issuance of the shares would be triggered when SCOR has experienced total annual aggregated losses or claims from natural catastrophes or extreme life events above certain thresholds between January 1, 2014 and December 31, 2016. The facility is available in two separate tranches of EUR 100 million each.
 
As well as being recognized in SCOR’s internal model, the facility has received favorable qualitative and quantitative assessments from rating agencies, including nearly full equity credit.In the absence of the occurrence of any extreme triggering event, no shares will be issued under the facility. The facility may therefore reach its term without any dilutive impact for the shareholders.
 
 
 
Denis Kessler, Chairman & Chief Executive Officer of SCOR, comments: “We are very pleased to launch a new, innovative and efficient contingent capital facility. It is fully in line with the active capital management policy we set out in our 3-year plan “Optimal Dynamics”. The facility continues to protect SCOR from the accumulation of defined extreme events and will help to reinforce the Group’s solvency if needed. It is a highly efficient source of capital within SCOR’s capital structure, and is even more cost-effective than the last facility. It is also more innovative than the last facility, in that the triggers now dovetail well with our new “Optimal” capital zone, and encompass extreme life events such as pandemics. Nevertheless, the probability of triggering the facility, which we estimate at below 2% per year, is very low. Given the theoretical dilutive impact of this product, this translates into a probable average dilution of less than 0.1%.
 
 
 

1 SCOR defines its “Optimal” zone to be a solvency ratio of 185-220% of its SCR (solvency capital requirement), as calculated by the Group’s internal model. The contingent capital facility is calibrated to the Group’s solvency level assumption over the “Optimal Dynamics” horizon. The solvency ratio itself is not a trigger. Solvency at the time of trigger, and post-trigger, will also depend on the solvency ratio pre-event, and the size of the event. 

 

Contact

Marie-Laurence Bouchon

Group Head of Communications

+33 (0)1 58 44 75 43

mbouchon@scor.com

 

Ian Kelly

Head of Investor Relations

+44 203 207 8561

ikelly@scor.com